As the city of Dallas faces how to fix a hugely underfunded police and fire pension system, the Fort Worth City Council sits in a better position with its pension fund after addressing solvency issues several years ago.
It’s not as if the Fort Worth system doesn’t have problems of its own. But the City Council more than a decade ago started taking steps toward reducing the liability associated with the fund that involved significantly reducing its benefits structure, something the Dallas council is now seeking to do. Fort Worth’s pension fund, which covers city employees, police and firefighters, was generous during the strong financial markets of the 1990s.
But those markets didn’t last and fund hobbled through some economic downturns, losing as much as 40 percent of its value with the Great Recession.
The Fort Worth Employees’ Retirement Fund board and the City Council have a joint meeting scheduled for late January and discussions on how to continue reducing its unfunded liability certainly will be a priority.
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They’ll also likely hear some ideas from city staff regarding a funding restoration plan that will go to the Texas Pension Review Board some time next year. The state board is requiring the plan because the city has had three consecutive years in which its pension amortization rate is greater than 40 years, considered a more desirable time goal for when the pension should be fully funded.
It makes the changes we made even more important. It’s not perfect, there’s work still to be done, but we’ll get there.
Fort Worth Mayor Betsy Price
Mayor Betsy Price said she is confident further changes to the pension fund will meet that goal.
“It makes the changes we made even more important,” Price said of the current status. “It’s not perfect, there’s work still to be done, but we’ll get there.”
Problems not alike
The city’s pension liability is $3.4 billion, of which $1.4 billion is unfunded. The unfunded liability is the difference between promised benefits and what’s on hand to pay for them. After some time at being at “infinite,” or never being able to pay it off, the unfunded liability dropped to 55.7 years in 2014, but rose to 72.5 years a year ago.
“I wouldn’t describe our problems the same” as Dallas’ problems, said Susan Alanis, a Fort Worth assistant city manager, “But, there’s still work to be done.”
Most of Fort Worth’s issues have resulted from lower than projected investment returns, a key revenue stream. Despite that, Alanis said this week there is no risk of not being able to pay benefits as they come due.
Quite frankly, our investment rate of return assumption is still a bit optimistic and the council is interested in the [retirement] board making it more conservative over time.
Susan Alanis, Fort Worth assistant city manager
“Quite frankly, our investment rate of return assumption is still a bit optimistic and the council is interested in the [retirement] board making it more conservative over time,” Alanis said.
Fort Worth’s fund had been assuming an 8 percent return on investment, but that was lowered to 7.75 percent in 2015. The fund didn’t hit that target either and lost money because of poor market conditions.
Through September of this year, the fund’s value stood at $2.09 billion, up from $2.02 billion at mid-year, the latest figures available show.
Investments alone cannot fix the problem. We have to be prepared for any kind of a market. We should be able to finish the calendar year with a performance close to our target rate of return. It’s not going to exceed that.
Joelle Mevi, Fort Worth Employees' Retirement Fund executive director and chief investment officer
The fund has been enjoying a strong market this year. As of Friday, the fund was up over 7 percent, said Joelle Mevi, the fund’s executive director and chief investment officer.
“Investments alone cannot fix the problem,” Mevi said. “We have to be prepared for any kind of a market. We should be able to finish the calendar year with a performance close to our target rate of return. It’s not going to exceed that.”
In June, Mevi told the council that based on 2015 year-end figures, it would take an additional 5 percent in payroll contribution to close the gap in the amount of time the city would need to make its pension fund whole.
About 30 percent of the city’s payroll, both in city and employee contributions, goes to the pension fund. The council has said it does not want to bump the city’s roughly 20 percent contribution, which comes from taxpayers.
Price said that unless “something drastic happens,” that amount will not change. “That number for us in our budget grows as the number of employees and salaries grow,” she said.
Fort Worth sought pension benefit cuts because contributions and investment returns were not enough.
The Fort Worth police and firefighter associations sued the city over the cuts. The city has won that litigation through the federal appeals court, but the police association has made an appeal to the U.S. Supreme Court.
Alanis said the city should know in a few weeks whether the court will hear the case.
This week, the Dallas Police and Fire Pension fund put a stop to the withdrawal of hundreds of millions of dollars from deferred retirement option fund program accounts, or DROP. The Dallas fund is looking at going broke as early as 2027 if changes are not made.
Like many governmental bodies, Fort Worth also uses a deferred program as an employee retention tool. There are some key differences between the cities’ two programs, though.
Fort Worth limits its employees to five years of contributions to a DROP account and the pension fund pays no interest on the money. In Dallas, the DROP was unlimited in years and guaranteed 8 percent interest.
About $110 million currently sits in DROP accounts in Fort Worth and since April, $12.4 million has been withdrawn, Mevi said.
The city has about 6,300 active employees and more than 4,100 others receiving pensions.